Business & Policy
Farmers should expect volatility to continue
By High Plains Journal
Farmers can expect the volatility that has marked the past year to continue, according to Dr. David Kohl of Virginia Tech. He made a presentation last week to growers in the US but his advice applies to producers in Canada as well.
March 17, 2009
Extreme volatility has been the name of the game for American agriculture producers in the last year. And that trend is going to continue, said Dr. David M. Kohl, professor emeritus, agricultural and applied economics at Virginia Tech.
"If you think all of this volatility is old hat, that's the new normal," Kohl said. But with unpredictability, there is tremendous opportunity, particularly in the field of agriculture. Kohl spoke during the Ag Issues Forum recently sponsored by Bayer CropScience.
Kohl said the world is coming into a time period of economic moderation, across all segments, not just agriculture. You are going to see volatility, he said, but it will be volatility at the extremes, followed by periods of extreme calm. It is those extremely calm periods that will entice people into thinking the volatility is over.
Consequently, consumers are going to have to be careful. They will need to re-prioritize business and personal decisions. "And we will all be better for it."
Kohl said it is a paradigm shift, away from living off of balance sheets and credit to liquidity and cash.
There will be five key elements to business in the next few years, Kohl said.
Cash will be extremely important, he said. "People say cash doesn't work for you, but if you are in a deflationary economy, you are getting a return on your investment because cash buys more of a cheaper investment."
Liquidity will also be key, which can sometimes be a real issue for agriculture producers, Kohl said. Farmers need to build liquidity and working capital. "If you have a hiccup, the liquidity allows you to get through the downturn. However, on the uptick, it helps you capitalize on business opportunities as they come along."
Businesses will also have to be creative. "We are in a period of time where you are going to be extremely innovative," Kohl said. He suggested business owners, including agriculture producers, examine their business and name their top three innovative practices. Doing so will keep owners aware of what keeps them above the rest.
Being resourceful is extremely important, with not only their natural resources, but finances, risk management and employees, Kohl said. At this critical financial time, poor employee management can drain a business. Owners have to hire the best employees. "You don't want dead wood around you," he said.
To see this article in its entirety, go to: www.hpj.com/archives/2009/mar09/mar16/Farmersshouldexpectvolatili.cfm